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Brazilian Economy Shrink By 0.2% In First Quarter. Analysts Say It’s Closer To Dip Recession.

Brazilian Economy

Brazilian Institute of Geography and statistics or IBGE, the country’s statistics agency, said its gross domestic product (GDP) shrank by 0.2% from the preceding quarter compared to the 0.5% GDP growth from a year earlier, which is in line with forecasts by economists. Brazilian economy, the largest in Latin America, constricted in the first quarter of 2019, for the first time since 2016.  Data revealed on Thursday, that the nation is pushing nearer to a double-dip slump.

After Five Recessions In 20 Years, Indices Points To Technical Recession.

The shrinkage heaped pressure on President Jair Bolsonaro, who in January resumed office after making market-friendly promises to enhance growth and lift the despair hanging over the economy since a brutal recession experienced between 2015 to 2016.

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Though, the data obtained were in line with forecasts, the economy stays weak.  The leading pointers from April and May, such as bank lending, consumer confidence, and export data, as well suggest the economy is still in a sulk.

According to Isabela Guarino, chief economist at XP Asset Management in Sao Paulo, who forecast growth of just 0.1% for the April to June quarter, “The signs so far in the second quarter are that the economy is not recovering.”

But there is a very real risk of contraction, which would take the country into a technical recession. It’s not our base case, but it’s a rising risk,” she added.

According to Alberto Ramos at Goldman Sachs, the Brazilian economy has been in recession five times in the past 20 years. The last time was 2015-16, one of the worst experienced in the nation’s history. The recovery since then is the weakest on record.

The Market Reactions To The Available Data.

Brazilian markets exhibited little reaction to the data. The Bovespa stock market was up 0.4% in early trade, the most solidly traded interest rate futures contracts over the next year were flat to slightly higher, while the real (the country’s currency) was steady at R$3.9770 to a dollar. However, the exchange has risen and rate expectations in recent days, have sharply fallen.

Reports From The Brazilian Central Bank.

The Brazilian apex bank’s weekly survey of around 100 financial institution revealed that the average guesstimate for 2019 GDP growth has dropped for 13 weeks consecutively and now stands at 1.2%, from the 2.5% at the beginning of the year.

Also, A 1.9% crash in exports and a 0.5% rise in imports meant that net trade was a drag on growth.

Though, fixed investment cut down by 1.7% in the first quarter, industrial output and agricultural output fell 0.5% and 0.7% respectively, IBGE figures showed.

On the other hand, services activity expanded 0.2%, household spending increased 0.3% and government expenditure rose 0.4%.

State Of The Economy.

The economy is stagnating, but the bias is downward. Growth will be near zero this year,” said Jose Francisco Goncalves, chief economist at Banco Fator in Sao Paulo.

Brazil’s GDP was worth 1.714 trillion reais ($431 billion) in the first quarter, IBGE said.



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